Aussie Punches Above .8600 - but Will It Hold?

[U][B]Talking Points[/B][/U]

  • Australian Dollar: ANZ job advertisements negative for first time this year
  • Euro: German IP in line
  • Pound: PPI is softer
  • Dollar: No major events on tap

[B][U]Aussie Punches Above .8600[/U][/B]
The Aussie made another 18 year high in overnight trade tonight printing at .8615 as carry trade demand continued unabated despite the fact that latest data offered little support for a near term rate hike from the RBA. The ANZ job advertisements posted their first negative month over month result this year. Taken together with a softer reading in last month Retail Sales, the most recent economic news for the Land Down Under suggests that growth may cooling. That view may be further confirmed if Australian employment data surprises to the downside later on in the week.
Yet speculative demand for the high-yielding Aussie remains voracious, especially out of Japan where the AUDJPY cross took out the 106.00 barrier. Japanese eco data was actually quite strong, with core machinery orders jumping 5.8% on a month over month basis versus 1.9% projected. The currency market however, completely ignored the data, as carry trade continues to thrive in the favorable environment of strong equities and rising yields in US long term bonds.
The yen was also hurt by the sharp decline in Japanese Eco Watcher survey numbers which dropped to 46 from 48 the month prior. The contraction is consumer sentiment in spite of booming corporate demand and healthy labor markets must be a setback to Japanese monetary policymakers looking for a pick up in the sector. The recent pension plan scandal has weighed heavily on the political popularity of Prime Minister Abe and he may be forced to resign if his party performs poorly in the upcoming upper house elections. Mr. Abe term as the Prime Minister has been a colossal disappointment after the dynamic tour of duty of his popular predecessor Prime Minister Koizumi and the lackluster performance of the yen may be as much a function of the lack of confidence on the part of Japanese electorate as it is a matter of low yield.
Yet, as we noted last week, consensus is building in Japan that the yen may have weakened too much, especially as oil continues to trade above the $70/bbl level putting substantial upward pressure on the country?s input costs. Tonight?s CGPI report may conform the continued sharp rise in those price levels and could provide the currency with some short term support. For now USDJPY pair continues to mark time as 125.00 level remains significant resistance.

[U][B]FX Upcoming[/B][/U]